U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter period ended September 30, 2000
------------------
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to _____________
OVM INTERNATIONAL HOLDING CORP.
(Exact Name of Small Business Issuer as specified in its Charter)
Nevada 88-0344135
(State or other Jurisdiction (IRS Employer
of incorporation) Identification No.)
West 516 Sprague Avenue
Spokane, Washington 99204
(Address of Principal Executive Office)
(509) 744-8590
(Issuer's Telephone Number, Including Area Code)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such requirements for the past 90 days.
(1) Yes X No (2) Yes X No
------ ------ ------ ------
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 12,050,000 shares of common stock,
$0.0001 par value, as of November 13, 2000.
Traditional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------------- -----------------------------------------
2000 1999 2000 2000 1999 2000
----------- ----------- ----------- ----------- ----------- -----------
RMB RMB US$ RMB RMB US$
<S> <C> <C> <C> <C> <C> <C>
NET SALES 25,542 46,519 3,085 86,592 127,367 10,458
COST OF SALES (13,798) (30,330) (1,667) (59,069) (75,301) (7,134)
----------- ----------- ----------- ----------- ----------- -----------
GROSS PROFIT 11,744 16,189 1,418 27,523 52,066 3,324
SELLING AND ADMINISTRATIVE
EXPENSES (10,302) (11,270) (1,244) (28,772) (35,056) (3,475)
INTEREST EXPENSES (430) (744) (52) (1,649) (2,634) (199)
INTEREST INCOME 32 76 4 170 206 21
OTHER INCOME/(EXPENSES), NET 256 211 31 (1,266) 864 (153)
----------- ----------- ----------- ----------- ----------- -----------
INCOME/(LOSS) BEFORE INCOME
TAXES 1,300 4,462 157 (3,994) 15,446 (482)
INCOME TAXES (715) (290) (86) (3,600) (2,100) (435)
----------- ----------- ----------- ----------- ----------- -----------
585 4,172 71 (7,594) 13,346 (917)
MINORITY INTERESTS (281) (1,368) (34) 1,861 (4,430) 225
----------- ----------- ----------- ----------- ----------- -----------
304 2,804 37 (5,733) 8,916 (692)
EQUITY IN EARNINGS OF EQUITY
INVESTEE 13 3 1 26 120 3
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME/(LOSS) 317 2,807 38 (5,707) 9,036 (689)
=========== =========== =========== =========== =========== ===========
BASIC AND DILUTED EARNINGS/(LOSS)
PER SHARE 0.03 0.23 -- (0.47) 0.75 (0.06)
=========== =========== =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 12,050,000 12,050,000 12,050,000 12,050,000 12,050,000 12,050,000
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
2000 1999 2000
------- ------- -------
RMB RMB US$
Notes (Unaudited) (Note) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and bank balances 6,846 22,859 827
Accounts receivable 2 38,674 33,804 4,671
Inventories 23,364 32,584 2,822
Prepayments, deposits and other 11,689 9,313 1,412
receivables
Due from related parties 40,591 36,360 4,902
Assets held for sale -- 6,609 --
------- ------- -------
Total current assets 121,164 141,529 14,634
Property, machinery and equipment, net 3 35,001 16,143 4,227
Investments 9,208 8,332 1,112
Other assets:
Deferred asset 1,966 4,661 237
Staff housing loans 838 2,831 101
Intangible assets 3,251 3,352 393
------- ------- -------
Total assets 171,428 176,848 20,704
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable 11,000 28,000 1,328
Current portion of long term debt 510 360 61
Current portion of capital lease obligations 262 -- 32
Accounts payable 33,980 25,529 4,104
Advance payments by customers 8,371 7,775 1,011
Other payables and accrued liabilities 11,357 15,062 1,372
Taxes payable 1,523 5,873 184
------- ------- -------
Total current liabilities 67,003 82,599 8,092
Long term debt net of current portion 540 690 65
Capital lease obligations 17,867 -- 2,158
------- ------- -------
Total liabilities 85,410 83,289 10,315
------- ------- -------
Minority interests in consolidated 30,575 32,436 3,693
subsidiaries -- -- --
Shareholders' equity:
Common stock, 40,000,000 shares, par value of
US$0.0001 authorized; 12,050,000 shares,
issued and outstanding 10 10 1
Additional paid-in capital 30,795 30,795 3,719
Retained earnings 24,550 30,257 2,965
Accumulated other comprehensive income 88 61 11
------- ------- -------
Total shareholders' equity 55,443 61,123 6,696
------- ------- -------
Total liabilities and shareholders' equity 171,428 176,848 20,704
======= ======= =======
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
3
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income Total
------- ------- ------- ------- -------
RMB RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 10 30,795 30,257 61 61,123
Comprehensive income:
Net loss for the period -- -- (5,707) -- (5,707)
Currency translation adjustments -- -- -- 27 27
------- ------- ------- ------- -------
Total comprehensive income (5,680)
-------
Balance at September 30, 2000 10 30,795 24,550 88 55,443
======= ======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
2000 1999 2000
------- ------- -------
RMB RMB US$
<S> <C> <C> <C>
Net cash provided by/(used in) operating activities (11,147) 15,583 (1,346)
------- ------- -------
Cash flows from investing activities:
Acquisition of property, machinery and equipment (6,051) (2,537) (731)
Disposal of property, machinery and equipment -- 7 --
------- ------- -------
Net cash used in investing activities (6,051) (2,530) (731)
------- ------- -------
Cash flows from financing activities:
Increase in notes payable 2,000 -- 242
Repayments of notes payable (1,000) (9,860) (121)
Increase of long term related party loan -- 20 --
Increase of other long term debt -- 300 --
Principal payments under capital lease obligations 185 -- 22
------- ------- -------
Net cash used in financing activities 1,185 (9,540) 143
------- ------- -------
Net increase/(decrease) in cash and cash equivalent (16,013) 3,513 (1,934)
Cash and cash equivalent, at beginning of period 22,859 25,419 2,761
------- ------- -------
Cash and cash equivalent, at end of period 6,846 28,932 827
======= ======= =======
Non-cash financing activities:
Note payable to JV Partner off
set against receivable from
JV Partner 18,000 -- 2,174
======= ======= =======
Non-cash investing activities:
Property, machinery and equipment acquired
through capital lease obligations 18,314 -- 2,212
======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
OVM INTERNATIONAL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month and nine month
periods ended September 30, 2000, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
For the convenience of the reader, amounts in Renminbi ("RMB") have
been translated into United States dollars ("US$") at the rate of
US$1.00 = RMB8.28 quoted by the People's Bank of China as at September
30, 2000. No representation is made that the RMB amounts could have
been, or could be, converted into US$ at that rate.
<TABLE>
<CAPTION>
2. INVENTORIES
September 30, December 31,
2000 1999
RMB RMB
<S> <C> <C>
Raw materials 5,150 9,676
Work in progress 3,010 10,722
Finished goods 15,204 12,186
------ ------
23,364 32,584
====== ======
3. PROPERTY, MACHINERY AND EQUIPMENT, NET
September 30, December 31,
2000 1999
RMB RMB
At cost:
Buildings 11,689 741
Plant and machinery 35,157 25,236
------ ------
46,846 25,977
------ ------
Accumulated depreciation:
Buildings 369 41
Plant and machinery 11,476 9,793
------ ------
11,845 9,834
------ ------
Property, machinery and equipment, net 35,001 16,143
====== ======
</TABLE>
6
<PAGE>
4. MATERIAL AGREEMENTS
In January 2000, the Company entered into various agreements with
Liuzhou OVM Joint Stock Company Limited (the "JV Partner"), which has
resulted in the following:
a. Termination of the Company's lease of land, buildings,
property and equipment from the JV Partner.
b. Allocation of Company personnel to the JV Partner resulting in
the reduction of Company personnel and financial assets
related thereto.
c. Termination of the Company's rights to use certain intangible
assets, including the "OVM" trademark.
d. Transfer of approximately 1/3 of the Company's inventories to
the JV Partner at normal selling prices excluding value added
tax at 17%.
e. Transfer of certain fixed assets included in Assets held for
Sale at December 31, 1999.
On December 11, 1999, as a result of the pending termination of the
Company's lease of land, buildings, property and equipment from the JV
Partner, the Company entered into a new lease agreement with an
unaffiliated third party for the lease of land and buildings in which
the Company's main operating facilities are located. The term of the
lease is 25 years, beginning January 1, 2000, with annual rent of RMB1
million (US$121,000) for the first five years and escalating at 1% each
year thereafter. In addition, on December 12, 1999, the Company entered
into a lease with another unaffiliated third party for the lease of
production and transportation equipment. The term of the lease is 20
years beginning January 1, 2000, with annual rent of approximately
RMB767,000 (US$93,000). Both of the above leases are to be treated as
capital leases.
In January 2000, approximately 300 of the Company's employees' left the
Company and became employees of the JV Partner. Certain assets which
were included in prepayments, deposits and other receivables, deferred
assets and staff housing loans and amounted to RMB787,000 (US$95,000),
RMB3,254,000 (US$393,000) and RMB2,034,000 (US$246,000), respectively
related to these employees were transferred to the JV Partner in the
second quarter of 2000. Approximately 100 of these employees have been
replaced for continuing operations.
Beginning in January 2000, the Company's products are marketed under a
new trademark ("HVM"), which is in the process of being registered by a
related company, Shenzhen Hong Da Technical Company Limited ("Hong
Da"). Hong Da has granted the Company the exclusive right to use the
HVM trademarks without cost.
The Company sold certain inventories and buildings, plant and equipment
to the JV Partner in the second quarter of 2000 at their carrying
values of RMB15,041,000 (US$1,817,000) and RMB9,515,000 (US$1,149,000),
respectively.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
NET SALES AND GROSS PROFIT. Net sales for the nine months ended
September 30, 2000 decreased by RMB40,775,000 (US$4,925,000) or 32.0% to
RMB86,592,000 (US$10,458,000), compared to RMB127,367,000 (US$15,382,000) for
the corresponding period in 1999. The decrease was mainly due to the Company's
relocation to new production and office facilities in early 2000 and the
production facilities are not yet operating at full capacity. The Company also
experienced competition from its JV Partner.
Gross profit decreased by RMB24,543,000 (US$2,964,000) or 47.1% to
RMB27,523,000 (US$3,324,000) for the nine months ended September 30, 2000
compared to RMB52,066,000 (US$6,288,000) in the corresponding period of the
prior year. The decrease was due to the decrease in sales during the current
period and the sale of certain inventories to the JV Partner, amounting to
RMB15,041,000 (US$1,817,000) at their carrying values.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses for the nine months ended September 30, 2000 decreased by RMB6,284,000
(US$759,000) or 17.9% to RMB28,772,000 (US$3,475,000), compared to RMB35,056,000
(US$4,234,000) for the corresponding period in 1999. The decrease was mainly due
to a decrease in selling expenses as a result of a decrease in sales, and a
decrease in salary expenses as some of the staff was transferred to the JV
Partner.
INTEREST INCOME/EXPENSE. Interest expense for the nine months ended
September 30, 2000 decreased by RMB985,000 (US$119,000) or 37.4% to RMB1,649,000
(US$199,000), compared to RMB2,634,000 (US$318,000) in the corresponding period
of the prior year. The Company has financed its acquisition of property,
machinery and equipment in fiscal 2000 by capital leases totaling RMB18,314,000
(US$2,212,000). Although there was a decrease in interest expense in the nine
months ended September 30, 2000 on notes payable, resulting from the decrease in
average bank borrowing rates and outstanding notes payable, it was partially
offset by the interest expense arising from the capital lease obligations.
Interest income for the nine months ended September 30, 2000 decreased by
RMB36,000 (US$4,000) or 17.5% to RMB170,000 (US$21,000),compared to RMB206,000
(US$25,000) in the corresponding period in prior year. The decrease was mainly
due to a decrease in average bank balances during the current period.
OTHER INCOME/(EXPENSES), NET Other income for the nine months ended
September 30, 1999 amounted to RMB864,000 (US$104,000), and mainly represented
income received on rental of machinery to certain related parties. Expenses
recorded by the Company for the nine months ended September 30, 2000 amounted to
RMB1,266,000 (US$153,000), and mainly arose from a sales return by a customer
during the second quarter.
INCOME TAXES. Pursuant to an approval issued by the State Tax Bureau of
the Liuzhou City dated July 22, 1966, the income of the JV is fully exempted
from Chinese national income tax for three years commencing from first
profitable year of operations in 1995 followed by a 50% exemption for the next
four years, after which the income is taxable at the full rate of 30% exclusive
of local income tax of 3%. The JV is also exempt from the local income tax rate
throughout the term of the joint venture. However, the National Tax Bureau has
revoked the preferential rate approval in 2000 such that the income of the JV is
only fully exempted from Chinese national income tax for two years commencing
from first profitable year of operation in 1995 followed by a 50% exemption for
the next three years, after which the income is taxable at the full rate of 30%
exclusive of local income tax of 3%. Accordingly, the Company has made
additional provisions in the current year for the income taxes assessed for
fiscal year 1997.
8
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
NET SALES AND GROSS PROFIT. Net sales for the third quarter of fiscal
2000 decreased by RMB20,977,000 (US$2,533,000) or 45.1% to RMB25,542,,000
(US$3,085,000), compared to RMB46,519,000 (US$5,618,000) for the corresponding
period in 1999. The decrease was mainly due to the Company's relocation to new
production and office facilities in early 2000, which were not operated at full
capacity during the quarter. The Company also experienced competition from its
JV Partner.
Gross profit decreased by RMB4,445,000 (US$537,000) or 27.5% to
RMB11,744,000 (US$1,418,000) for the third quarter of fiscal 2000 compared to
RMB16,189,000 (US$1,955,000) in the corresponding period of the prior year. The
decrease was mainly due to the decrease in sales during the current period.
However, the Company earned a higher gross profit margin on sales in the third
quarter of 2000 compared to that of the corresponding period in 1999, due to
improved market conditions and the lower cost of production after the Company's
relocation of production facilities in early 2000.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses for the third quarter of fiscal 2000 decreased by RMB968,000
(US$117,000) or 8.59% to RMB10,302,000 (US$1,244,000), compared to RMB11,270,000
(US$1,361,000) for the corresponding period in 1999. The decrease was mainly due
to a decrease in selling expenses as a result of a decrease in sales, and a
decrease in salary expenses as some of the staff were transferred to the JV
Partner.
INTEREST INCOME/EXPENSE. Interest expense for the third quarter of
fiscal 2000 decreased by RMB314,000 (US$38,000) or 42.2% to RMB430,000
(US$52,000), compared to RMB744,000 (US$90,000) for the corresponding period of
the prior year. The Company has financed its acquisition of property, machinery
and equipment in fiscal 2000 by capital leases totaling RMB18,314,000
(US$2,212,000). The decrease in interest expense in the third quarter of fiscal
2000, resulted from the decrease in average bank borrowing rates and a reduction
in outstanding notes payable, which was only partially offset by the interest
expense arising from the capital lease obligations. Interest income decreased
from RMB76,000 (US$9,000) for the third quarter of fiscal 1999 compared to
RMB32,000 (US$4,000) for the corresponding period of fiscal 2000. The decrease
was due to an decrease in average bank balances during the current period.
OTHER INCOME/(EXPENSES), NET Other income for the third quarter of 1999
and 2000 mainly represented income received on rental of machinery, service
income and sales of packaging materials to customers.
INCOME TAXES. See discussion of income taxes under comparison of nine
months ended September 30, 2000 compared to nine months ended September 30,
1999.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs are to fund inventories, accounts
receivable and capital expenditures. The Company has financed its working
capital requirements through a combination of internally generated cash, short
term bank loans and advances from affiliates.
The Company had a working capital surplus of RMB54,161,000
(US$6,541,000) as of September 30, 2000 compared to RMB58,930,000 (US$7,117,000)
as of December 31, 1999. Net cash used in operating activities for the nine
months ended September 30, 2000 was RMB11,147,000 (US$1,346,000) as compared to
net cash provided by operating activities of RMB15,583,000 (US$1,882,000) for
the corresponding period in 1999. Net cash flows from the Company's operating
activities are attributable to the Company's income and changes in operating
assets and liabilities.
The Company's additions to property, machinery and equipment for the
nine months ended September 30, 2000 were RMB24,365,000 (US$2,943,000), of which
18,314,000 (US$2,212,000) was financed by capital leases.
There has been no other significant change in financial condition and
liquidity since the fiscal year ended December 31, 1999. The Company believes
that internally generated funds together with available bank credit, will be
sufficient to satisfy its anticipated working capital needs for at least the
next twelve months.
YEAR 2000 ISSUE
The Year 2000 issue is the result of information technology systems and
embedded systems using a two-digit format, as opposed to four digits, to
indicate the year. The Company and its subsidiaries use a limited amount of
computer software primarily in connection with their accounting and financial
reporting systems. Such programs have been upgraded so that they are year 2000
compatible. In addition to software issues, certain of the computer hardware of
the Company and its subsidiaries have been replaced with more current
technology.
As of September 30, 2000, the Company has not experienced any
disruptions or failures to its normal operations as a result of the transition
into calendar year 2000.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
NONE
ITEM 2. CHANGES IN SECURITIES:
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule (Electronic filing only).
(b) During the three months ended September 30, 2000, the Company filed no
current Reports on Form 8-K.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OVM INTERNATIONAL HOLDING CORP.
November 13, 2000 By:/s/ Ching Lung Po
----------------------------------
Ching Lung Po, President
By:/s/ Deng Xiao Qiong
-----------------------------------
Deng Xiao Qiong, Principal Financial
and Accounting Officer
12
